Following the global success of DeepSeek’s latest artificial intelligence reasoning model, China’s top economic officials have announced plans to establish a state-backed fund aimed at supporting technological innovation.
The new “state venture capital guidance fund” will target advanced fields like artificial intelligence, quantum technology, and hydrogen energy storage. Zheng Shanjie, the head of China’s state economic planning body, revealed the initiative to reporters on Thursday during the annual meetings of China’s national legislature and advisory body.
Zheng, who is also the chairman of the National Development and Reform Commission, noted that the fund is expected to attract around 1 trillion yuan ($138 billion) in capital over the next 20 years, with contributions from local governments and the private sector.
Chinese leaders consider advanced technologies like high-end chips, quantum computing, robotics, and AI to be essential for driving economic growth and modernizing manufacturing. However, China is facing increasing pressure due to US technology restrictions.
At a news conference, Zheng Shanjie, head of China’s state economic planning body, took a defiant stance, highlighting China’s significant progress in areas like microchips, AI large language models, and both industrial and humanoid robots.
“Scenes once only seen in science fiction are now becoming reality. We are steadily moving toward the global frontiers of technology and innovation,” Zheng stated. He added that the ongoing efforts to suppress China’s development, particularly from certain foreign forces, are only pushing the country to accelerate its own drive for innovation.
DeepSeek, a private company, made waves with its R1 large language model, which, upon its release in January, was able to nearly match the performance of top models from companies like OpenAI, Meta, and Google—yet it did so at a fraction of the cost.
This development caught many by surprise, as the US has spent years trying to limit China’s access to high-powered AI chips, citing national security concerns. Despite these restrictions, DeepSeek managed to produce its low-cost model using relatively less powerful AI chips.
On Wednesday, during his annual work report, China’s Premier Li Keqiang pledged to support the growth of emerging industries and future technologies. He promised to create a framework to boost funding for sectors such as bio-manufacturing, quantum technology, embodied AI, and 6G technology.
Boosting consumption
After years of focusing primarily on technological innovation, China’s leaders are now shifting their focus towards strengthening domestic consumption as a top priority. According to Zheng, an economic official, the government is set to unveil a “special action plan to boost consumption” in the near future.
In 2023, despite efforts to stimulate the economy in September, China’s growth was largely driven by exports, which helped push the country’s trade surplus to a record nearly $1 trillion. This trade strength has drawn criticism from US President Donald Trump, who recently increased US import tariffs on Chinese goods to 20%.
China’s household consumption accounted for just 39% of its GDP in 2023, based on data from Macquarie Group, an investment bank. This is significantly lower than countries like South Korea (49%), Japan (55%), and the United States (68%), all of which have higher household consumption rates despite also having high savings levels.
HSBC economists, led by Jing Liu, noted that Beijing is determined to boost domestic strength in the face of growing external uncertainties. They emphasized that China is taking steps to stimulate domestic consumption.
As part of this strategy, Premier Li announced an increase in the country’s budget deficit to around 4% of GDP, the highest in decades. This move is designed to ramp up spending and help mitigate the impact of US tariffs.
China’s government plans to increase the quota for government bond issuance by over 25% compared to last year, raising it to 6.2 trillion yuan ($855 billion), which will be divided between local and central authorities.
Local governments will use special bonds for infrastructure projects and to support the struggling housing market, while the central government will allocate around 300 billion yuan ($41 billion) to fund consumer subsidies for a popular “cash-for-clunkers” trade-in program, which applies to both cars and consumer electronics.
A key factor in the government’s success will depend on its ability to revive the “animal spirits” of China’s private entrepreneurs. These businesses will play a crucial role in driving technological innovation, especially as Beijing anticipates more restrictions from the US.
Last month, Chinese leader Xi Jinping met with top tech executives and encouraged private enterprises, stating that it was “prime time” for them to maximize their potential.
Private businesses, despite being smaller than state-owned companies, contribute over 60% to China’s GDP and more than 80% of employment. However, many, particularly in the tech sector, are still recovering from a prolonged regulatory crackdown that lasted over three years.
To address concerns, the government is considering the Private Economy Promotion Law, which is set to be discussed during the ongoing political meetings. This law aims to provide legal support and protections for private companies, particularly regarding property rights and fair competition. Yang Decai, director of the Private Economic Research Institute at Nanjing University, said the law addresses key concerns of the private sector and has boosted confidence in the market, which is vital for the stable growth of China’s economy.